Let’s not
forget that just about every pundit predicted doom for Google when it went IPO in 2004. I have heard compelling arguments that Google was likely to
self-implode and the growth would stagnate. Yet, Google defied gravity to become the
most successful technology company (only next to Apple).

Challenges of Historical Models

Nobody
can predict whether Facebook will become another Google. Facebook needs to execute flawlessly
and there are numerous pitfalls (apart from the stock performance). It might be just one privacy fiasco away from
self-destruction. The advertising business model might not scale, as most of the daily visitors simply don’t click on the cluttered ads. Despite the Instagram
splash, mobile could turn out to be their Achilles heel. Advertisers on Facebook
have been rightly compared to solicitors in a bar where you hang out with friends. GM
pulling out its ad spend on Facebook added fuel to the fire.

However, most
pundits seem to evaluate Facebook based on the historical business models that
we are familiar with – web and mobile advertising. When Google started, just
about any ‘business guy’ was asking them smugly about monetization & user 'lock-in'. When Larry page spoke at Stanford in 2003, I asked this question directly to him. He (rightly) admonished me for being B-School type and repeated the ‘Don’t be Evil’
mantra. Google believed that creating value for the end-users would convert to money at some point. Then they invented the AdWords business model
that became virtually a money-printing machine.

New Markets and Business Models

I think it’s
wrong to evaluate Facebook on the models we understand today including mobile.
The real power of Facebook is in being the true identity management solution for the world. It's far beyond mining the tons of data. Facebook has an enormous opportunity to be a consumer-facing
Social CRM, unlike the traditional B2C CRM solutions that are primarily designed
to be used by enterprise employees. Today, brands and retailers have practically no way to engage 1:1 with their consumers. If designed well, Facebook can be
the facilitating neutral intermediary for 1 Billion+ consumers to have a rich 2-way engagement
unobtrusively with the few products they really care about in one place from registration to offers to support, instead of being bombarded with annoying and
irrelevant ads. It could also integrate with the CRM solutions of enterprises (on-premise or cloud) to connect with consumers.
It’s happening at a crude level today, but there’s a lot of scope for improvement. (Update: from the comments below, it looks like consumer-facing social CRM can also be called VRM - vendor relationship management).

I have
written about how Facebook could enter offline & mobile commerce leveraging mobile
loyalty solutions. Of course, this requires addressing the privacy
challenges, but these are just some of the potential new multi-billion markets Facebook could enter and redefine and that might justify its valuation.

IPO euphoria is tricky. We have negative examples of Groupon as a company that was hyped, but fell from glory, but there are also examples like LinkedIn that seems to have figured out how to engage business
professionals on a daily basis and continues to raise the market cap after IPO.

I suspect
beneath the mirth of a casual social network and brandishing of F-Commerce (strange name!), Facebook has some strategic assets that
can transform the world of commerce, just like Google did with search
advertising. Let’s
hope the billions don't distract them and Facebook will march along their mission to 'make the world more open and connected', led by their cool-headed business leader Sheryl Sandberg, while making 'some' money along the way!Disclaimer:
This is purely an outsider’s view and I have had no discussions
with Facebook about its strategy. And I don't own any Facebook shares (yet:-)